The construction industry is salivating at the prospect of energy investment after government policy took two major steps forward this month.
“It’s a big opportunity for construction firms,” says cost consultant Turner & Townsend managing director of infrastructure Murray Rowden.
But experts warn that much still must be done to get the investment flowing.
Introduction of the government’s energy White Paper and approval of its energy national policy statements (NPSs) have been seen as a major advance by the industry.
Last week MPs approved the eight energy NPSs. Approval gives developers greater certainty by outlining how planning applications will be considered. It also meant that the eight proposed new nuclear sites were approved.
The approval of the NPSs came after the Department of Energy and Climate Change (Decc) unveiled its Energy Market Reform White Paper which sets out ways to decarbonise the UK energy sector.
The White Paper gives further clarification about how the energy mix will begin to change in the UK.
2020 Energy Targets
It places much more emphasis on meeting renewable targets in 2030, rather than 2020.
“It’s all about the 2030 targets,” says EC Harris partner Mark Stewart.
“It’s a sensible option because the government needs to balance affordability with security of supply and transitioning to low carbon.”
The UK has a European Union target to have 15% of its energy to supplied from renewable sources by 2020 and failure to meet this will result in fines. However, experts believe that it is better to plan for 2030, when the renewables target rises to 30% of energy supplied and when major offshore wind developments and the new nuclear power programme is expected to come on stream.
By 2020 only Hinkley Point C out of the proposed new nuclear fleet is likely to be generating electricity.
“If we get to between 10% and 12% renewable energy by 2020 then we’ve done well, but [to meet] 15% there is no chance,” says Stewart.
“Developers can’t find the funding, so breaking sites up into smaller schemes would be better for investors”
Mark Stewart, EC Harris
Up to 32GW of capacity could be created by Crown Estate’s Round 3 offshore wind programme. This will be essential to the UK’s efforts to reach its target.
Decc estimates a minimum of 10GW installed capacity will be achieved by 2020.
Stewart believes that the sites could be broken up to help encourage development.
“Developers can’t find the funding, so breaking sites up into smaller schemes would be better for investors,” he says.
It is thought the 7GW Norfolk Bank development zone, could be split into 10 projects of 600MW to 700MW.
Projects then would be similar in size to the recently built Round 2 London Array wind farm off the Kent coast which has an installed capacity of 630MW, rising to 1GW.
New nuclear is also central to the energy mix, with other carbon-free options such as large scale tidal power missing out.
Experts agree that new nuclear is likely to secure private finance because the government has agreed to pay subsidies linked to electricity prices so that if prices fall, subsidy rises.
“The government has been consistent with its message of wanting nuclear construction,” says Rowden.
Tidal power remains in limbo following the cancellation of the Mersey and Severn barrage schemes in the past six months.
The huge capital costs mean such schemes are unlikely to be funded and the current electricity market reform proposals are unlikely to change this.
Gas power stations
The energy White Paper also confirms that that there will be a dash for gas fired power during this decade.
Combined cycle gas turbine power stations will be built because they can provide energy while the coal power stations are being decommissioned and while renewable sources are developed.
Gas fired power will then be used as a back up source of electricity when renewable supplies are interrupted, for example when there is no wind.
Six gas power plants are at the planning stage and eight more are believed to be under consideration.
The White Paper also sets out a timeline for establishing an organisation which will set arrangements for negotiating feed in tariffs. It will also determine the amount of spare capacity generators must retain; the carbon floor price; and requirements for power station efficiency.
“There will have to be a strategic programme,” adds Rowden.
“The government will have to take ownership, whether it’s through Infrastructure UK or [energy regulator] Ofgem.” (NCE 13 January)
The policy will be finalised by the end of the year, with legislation expected to go before Parliament by mid-2012 and come into force the following year.